High Growth, low p/e, noble large shareholders.
Over the years some of us have noticed how one forgotten sector gets little attention and year after year remains dormant. Only to be awaken one day, but when? Can you guess which one this is currently?
No, not the Health Care sector which also used to be asleep for many years, only to be awaken by BH (BUMRUNGRAD HOSPITAL) whose stock well more then tripled in value in past 3 years. Recently other choices in this sector have also fared well with Bangkok Chain Hospital showing a nice rise from 6 to over 7 Baht per share, this after a broker advocated a buy opinion on KH a month ago. The health care sector is no longer the sleeper.
For previous articles on BH see for example:
http://www.thaistocks.com/index.php?module=Pagesetter&func=viewpub&tid=1...
http://www.thaistocks.com/index.php?module=Pagesetter&func=viewpub&tid=1...
We here had BH on our focus buy-list 2-3 years ago and it did very well for members. I took some nice profits when this stock started to get overpriced, as viewed by a strict value investor. For my taste, BH remains one of the world’s best hospitals, but not a stock I find attractive due to its current trophy stock valuation.
The sector which never-ever got much attention for years I refer to today, is the Insurance sector. Over the years I have often been regularly asked about choices here, only to give an un-excited answer back. I don"t think I ever wrote up even one of them. After all a bargain which remains a bargain, is no bargain. For the most part, it was wise to stay away here, no matter how attractive.
While I am far from convinced the insurance sector will now, or ever, wake up, nor what will make it get noticed; I nevertheless want to give you a short review of one company which shows you why there are some superb values to be had, even while nobody else is paying attention. A great long term buy is the rating I want to assign today to TIC.
SET listed Thai Insurance PLC (16.4) is expanding fast through a large corporate and untapped retail customer base, as well as through the many successful small and medium sized Thai enterprises here. TIC just successfully doubled its registered capital when it issued for each 1 old, you got 1.08 new shares, at 14 Baht each. Hence its shares outstanding have just about doubled, yet the average daily trading volume remains as low -as in the past. Since the beginning of this year TIC has launched a number of new products and so is growing rather fast -and well above industry average. You can see their web site at www.thaiins.com
For the past 6 months of this year operating results have been most impressive with written premiums increasing over 30%, to 42.1 million Baht. Underwriting profit rising 39% to 92.3 mill. Baht. This company posted a net profit of 25.8 mill. Baht for its first 6 months this year vs. 12.49 mill for last years same period. This represents a 106% increase.
Premium growth was largely attributed to substantial growth in miscellaneous insurance sale driven by personal accident and motor insurance, which increased 110% and 17.5% to 103.8 mill Baht and 198.5 mill Baht respectively. Motor vehicle insurance contributes now 47% of the company sales with fire make up 26%, marine 3% and various 24%.
According to Ms. Panita Tuchinda, the company’s managing director, regardless of current political events and slower economic growth, "the company remains upbeat achieving the sales target by end of the year. TIC forecasts growth this year to 1.05 Billion Bah from 726 mill Baht last in 2005". For the first six months net profit for TIC have more then doubled from 12.4 mill. to 25.7 mill Baht. For the just past 3 months, the 2 Q, (its latest reported period) net profits have increase 145% from 5.5 mill to 13.5 mill. Baht. The book value is shown at 22.7 Baht, TIC shares are so trading at 0.7 times book.
Six month earnings per share is shown at 2.20, with the last quarter showing 0.98. This I so think could easily reach 5 Baht per share for all of year 2006. However since the number of shares outstanding just doubled, I come to a rough gue-estimate of 2.50 EPS for this year, fully diluted. Realize that 10,400,034 new ordinary shares with a par value of 10, where issued in the 2 Q.
Hence TIC is trading at a p/e of less then 7, fully diluted, and because it just doubled it registered capital there plenty of room to grow next year and beyond. Surely the managing director thinks so.
On dividends the company states "Minimum of 40% of net profits after tax"
From this I induce the dividend could well be 1 Baht per share or about 6% on the current price. Not bad for a company growing considerably faster then the average SET company.
As a bit of further positive "wild card" here is a news release from TIC, just issued to the SET on September 21 "06, I so wonder if the 3 Q earnings report could be the caveat which sends this stock higher? Are they not here alerting us to a favorably 3 Quarter earnings report?
"Dear Sirs,
"With reference to Department of Insurance No.0505/957 dated September 7,2006 in respect of the change in the account method of reinsurance premium reserve that required the non-life insurance companies to reserve the unearned premium for the business placement placed to foreign reinsurers.
"We would like to inform that the Company would not have to set aside the above reserve, since the Company have already transferred the risks to reinsurers. This will have the positive effect to the Company’s financial statements as of third quarter ended September 30,2006. However, such change is the accounting alteration only.
"Please be informed accordingly.
Yours sincerely,
"The Thai Insurance Public Company Limited
Miss Panita Tuchinda
Managing Director "
TIC stock does not trade much at all -and so has not move-up in price for many years, after adjusting for its recent capital increase. If my gu-estimate on its earnings per share this year is close to 2.50, TIC is also trading at a lower p/e then ever before. TIC is one of oldest firms on the SET, as it got listed back in August of 1976, or some 30 years ago! A rough look back shows that its average p/e from 1984 to 1993 was a high 22.
Last but not least, guess whom is listed as by far as the biggest TIC shareholder? No one less then his Majesty the Thai King, with a 17.6% ownership. Further some of the King’s family are also shown as large shareholders. To me this is an indirect endorsement that TIC must be run honestly and by good people.
My guess is that this smaller cap fast growing insurance company may well deserve to be on your list of long term investments, even while currently the trading liquidity is ever so low. Of course, always diversify your stock portfolio.
Best Regards,
Paul A. Renaud.
www.thaistocks.com
